Commentary on development, globalization, and trade by Jonathan Dingel.

William Easterly: Nobody knows anything

I highly recommend listening to the podcast of this event at the Cato Institute from about a month ago. William Easterly delivers a blistering attack on efforts to plan and organize development, calling for us “to oppose ideas that seek collective expert direction of development… basically any effort by the United Nations, IMF, or World Bank.” He acerbically notes that “there are all these poor people that have the nerve to achieve development anyway in spite of the lack of our expert advice,” and “I don’t think anyone has run around saying, ‘oh thank god, egypt has shown us the way; the secret is to export bathroom ceramics to Italy'” (30% of Egyptian export manufacturing revenues come from bathroom ceramics sold to Italy).

But Easterly’s very critical remarks are born from humility, from the Hayekian insights that “nobody knows anything” and that “to plan or organize progress is a contradiction in terms.” Moreover, he has bad news for those who think that the failures of planning mean we just need to preach free markets and follow a Washington Consensus-style recipe. Free market and liberal democratic institutions are endogenously produced by economic and political entrepreneurs.

Of course, Arvind Subramanian has to remind Easterly of the merits of the conventional wisdom. First, policymakers in developing economies do have to make decisions, and the position that economic development is unpredictable and unknowable isn’t very helpful to those who have to work on these kinds of questions. Second, the fact that the average effect of a policy or endowment is zero does not make it irrelevant — we want to tease out the difference between the above-average and below-average cases, if we can.

The ensuing back-and-forth between Easterly and Subramanian as they try to resolve their disagreements is very enjoyable and offers some great food for future thought.